The case is attached in the files Instructions Carefully read the case and consider its context in relation to supplier contract design and relationship management readings and concepts learned in t

Bose Corporation, headquartered in Framingham, Massachusetts, offers an excellent

example of integrated supply chain management . Bose, a producer of audio premium

speakers used in automobiles, high -fidelity sys tems, and consumer and commercial

broadcasting systems, was founded in 1964 by Dr . Bose of MIT . Bose currently maintains

plants in Massachusetts and Michigan as well as Canada, Mexico, and Ireland . Its purchasing

organization, while decentralized, has some overlap that requires coordination between sites .

It manages this coordination by using conference calls between managers, electronic

communication, and joint problem solving . The company is moving toward single sourcing

many of its 800 to 1,000 p arts, which include corrugated paper, particle board and wood, plastic

injected molded parts, fasteners, glues, woofers, and fabric .

Some product components, such as woofers, are sourced overseas . For example, at

the Hillsdale, Michigan, plant, foreign sourcing accounts for 20% of purchases, with the

remainder of suppliers located immediately within the state of Michigan . About 35% of the

parts purchased at this site are single sourced, with approximately half of the components

arriving with no incomi ng inspection performed . In turn, Bose ships finished products directly to

Delco, Honda, and Nissan and has a record of no missed deliveries . Normal lead time to

customers is 60 working days, but Bose can expedite shipments in one week and airfreight

them if necessary.

The company has developed a detailed supplier performance system that measures on -

time delivery, quality performance, technical improvements, and supplier suggestions . A report

is generated twice a month from this system and sent to the s upplier providing feedback about

supplier performance . If there is a three -week trend of poor performance, Bose will usually

establish a specific goal for improvement that the supplier must attain . Examples include 10%

delivery improvement every month un til 100% conformance is achieved, or 5% quality

improvement until a 1% defect level is reached over a four -month period . In one case, a supplier sent a rejected shipment back to Bose without explanation and with no corrective action

taken . When no signif icant improvement occurred, another supplier replaced the delinquent

supplier.

Bose has few written contracts with suppliers . After six months of deliveries without

rejects, Bose encourages suppliers to apply for a certificate of achievement form, signify ing that

they are qualified suppliers . One of the primary criteria for gaining certification involves how

well the supplier responds to corrective action requests . One of the biggest problems observed

is that suppliers often correct problems on individua l parts covered by a corrective action form

without extending these corrective actions to other part families and applicable parts.

Bose has adopted a unique system of marrying just -in-time (JIT) purchasing with global

sourcing . Approximately half of the dollar value of Bose’s total purchases are made overseas,

with the majority of the sourcing done in Asia . Because foreign sourcing does not support just -

in-time deliveries, Bose “had to find a way to blend low inventory with buying from distant

sources,” says the director of purchasing and logistics for Bose.

Visualizing itself as a customer -driven organization, Bose now uses a sophisticated

transportation system — what Bose’s manager of logistics calls “the best EDI system in the

country.” Working closely w ith a national less -than -truckload carrier for the bulk of its domestic

freight movements, including shipments arriving at a U.S . port from oversees, Bose

implemented an electronic data interchange (EDI) system that does much more than simple

tracking . The system operates close to real time and allows two -way communication between

every one of the freight handler’s 230 terminals and Bose . Information is updated several times

daily and is downloaded automatically, enabling Bose to perform shipping analysi s and

distribution channel modeling to achieve reliable lowest total cost scenarios . The company can

also request removal from a terminal of any shipment that it must expedite with an air shipment.

This state -of-the -art system provides a snapshot of what is happening on a daily basis

and keeps Bose’s managers on top of everyday occurrences and decisions . Management proactively manages logistics time elements in pursuit of better customer service . The next step

is to implement this system with all major s uppliers rather than just with transportation suppliers .

In the future, Bose plans to automate its entire materials system.

Perhaps one of the most unique features of Bose’s procurement and logistics system is

the development of JIT II . T he basic premise of JIT II is simple: The person who can do the

best job of ordering and managing inventory of a particular item is the supplier himself . Bose

negotiated with each supplier to provide a full -time employee at the Bose plant who was

responsible for ordering , shipping, and receiving materials from that plant, as well as managing

on -site inventories of the items . This was done through an EDI connection between Bose’s

plant and the supplier’s facility . Col locating suppliers and buyers was so successful that Bose

is now implementing it at all plant locations . In fact, many other companies have also begun to

implement col location of suppliers.

Assignment Questions

The following assignment questions relate to ideas and concepts presented throughout this text.

Answer the following questions.

1. Which supplier performance measurement technique(s) do you recommend for Bose?

Justify.

2. According to the case “In one case, a supplier sent a rejected shipment back to Bose

without explanation and with no corrective action taken. When no significant

improvement occurred, another supplier replaced the delinquent supplier.” What

elements in the contract w ith that supplier had possibly allowed Bose do this? What are

your thoughts on such elements?

3. What are the implications of JIT II strategy pursued by Bose on the contract terms with

that supplier?

4. What are the implications of JIT II strategy by Bose on its supplier management plan?